Bank of England holds interest rates and QE - reaction

The Bank of England policymakers have opted to maintain interest rates at
0.5pc and not expand their money printing programme. Here experts give their
view.

The Bank said on Thursday that the key interest rate and bank rate would be held at a record low of 0.5pc and its asset purchase total would remain at £375bn.Photo: Rex Features

12:18PM GMT 07 Mar 2013

Howard Archer, IHS Global Insight

The Bank of England’s decision to hold off from stimulative action was highly likely the result of a tightly split vote and we strongly suspect that the MPC will act in the second quarter and very possibly as soon as April.

Not only is the Bank of England evidently worried by the economy’s ongoing struggles but there is also the strong suspicion that the MPC is keen to be seen to be more flexible and active ahead of Mark Carney’s arrival as governor at the start of July. There are also signs that the MPC is becoming more worried that the Funding for Lending Scheme may not lift bank lending as much as had been hoped for, particularly to smaller companies.

We expect the Bank of England to deliver one £25 billion portion of QE in the second quarter (taking the stock up to £400 billion) with another £25 billion portion (taking the stock up to £425 billion) occurring shortly after Mark Carney takes over as Bank of England Governor in July.

Ian Kernohan, Royal London Asset Management

With sterling and gilt yields lower in recent weeks, and signs from the labour market that the economy may not be as weak as the 'Triple Dip' headlines suggest, the MPC has decided that extra stimulus was not needed at this time.

Going forward, further QE remains possible, however, we think a rate cut is unlikely, given the likely squeeze on lenders margins and the detrimental effect on money markets.

Stephen Gifford, CBI

A combination of mixed economic data and the MPC’s recent tilt in a more dovish direction, is likely to have made this decision a close call.

With only a modest pick-up in growth expected, the possibility of further QE will remain a live issue.

Martin Beck, Capital Economics

Although the Monetary Policy Committee (MPC) left policy on hold again today, we expect that it will not take much to swing a majority of members in support of more stimulus in the near future.

While this will probably, in part, take the form of more quantitative easing (QE), the growing openness of the Committee to new ideas suggests that the MPC is unlikely to remain a “one-club golfer”.

Given the weakness of the economy, and the likelihood that QE is running into diminishing returns, the MPC may well announce a range of stimulus measures.

David Kern, British Chambers of Commerce

We support the MPC’s decision to maintain QE at £375bn, and hold interest rates at 0.5%.

We are concerned that the demand for more QE will be seen as part of a wider policy shift, which implies that the MPC is now prepared to tolerate higher inflation and a much weaker sterling. If true, this is problematic.

Although higher inflation eases the debt burden, it squeezes businesses and consumers, and is more likely to weaken growth rather than strengthen it.

Adding to QE would also weaken sterling further, and the damage that higher inflation will cause will outweigh the small benefits to exporters from a lower pound.

Matthew Renier, Retire Right

Pensioners will breathe a sigh of relief, as there was every chance the Bank would resort to further money-printing, which really hits annuity rates.

But today is a hollow victory: the plight of pensioners and savers is still a bleak one.